Blackstone: RE trumps PE

Tony James said the real estate investment business had ‘several advantages’ over private equity.

Hamilton “Tony” James, The Blackstone Group’s president and chief operating officer, has highlighted the importance of the firm’s real estate business compared to its other business lines. “Real estate is our best business,” he said during an on-stage interview in London Wednesday. “The advantages are several-fold.”

James cited the “less efficient” market – which allows Blackstone to generate better returns – and the larger “investment universe” as drivers behind the business line’s success. He also noted the fact that one acquires “hard assets” in real estate, unlike in private equity.

Tony James

James went on to note that in the real estate investment management space, the firm’s largest competitors – investment banks – had either disappeared altogether (Lehman Brothers and Bear Stearns being prime examples) or suffered significant mark-downs on their portfolios.

Blackstone, the listed alternatives giant, has $128.1 billion in assets under management, of which $109.5 billion is fee-earning. The firm has four different business lines: private equity, real estate investment, credit and advisory services.

As of the end of September 2010, the private equity and real estate businesses had $24.3 billion each in fee-earning assets under management, while the credit business had $55.6 billion.

James’ remarks were made at a London School of Economics and Political Science event during an onstage interview conducted by Felda Hardymon, professor of management at Harvard Business School and a partner of Bessemer Venture Partners.

On the subject of private equity, James noted that the average compensation of a private equity partner at Blackstone had dropped 90 percent since 2006 and would never return to 2006 levels.

At this point Hardymon joked that a couple of Blackstone’s private equity partners had “got up and left” from the back of the auditorium.